HTC to Pay Nokia Royalties to End Smartphone Patent Fight

HTC Corp. (2498) and Nokia Oyj (NOK1V) have agreed to collaborate after ending a patent-infringement dispute that could have resulted in the devices of Taiwan’s largest smartphone maker being kept out of the U.S. market.

HTC will pay royalties to Nokia to end the dispute, they said yesterday in a statement, without disclosing the financial terms of the settlement. Each company will gain access to the other’s patented technology and will explore “future technology collaboration opportunities,” they said. The U.S. International Trade Commission in Washington was scheduled to announce Feb. 10 whether it would issue an import ban on HTC devices.

Both Nokia and HTC have lost their lead positions in the mobile phone market. Patents will be one area of focus for Nokia after the former mobile-phone market leader agreed in September to sell its handset division to Microsoft Corp. HTC is counting on an updated version of its One smartphone, its first wearable device and a renewed focus on marketing to help turn around the company after two straight annual declines in revenue.

“The win could be a useful benchmark” for Nokia, Kulbinder Garcha, an analyst at Credit Suisse Group AG, wrote in a note yesterday to clients. “The win positions Nokia well in the ongoing arbitration with Samsung to monetize IP beyond standard essential patents and implementation patents.”

The settlement and the patent agreement with Nokia has no material adverse impact on the finances of HTC, the Taoyuan, Taiwan-based company said in a filing to the Taiwan Stock Exchange today. The two companies said they have settled all pending patent litigation between them.

“The pact reduces one uncertainty for HTC,” said Fu-li Chen, an analyst at Jih Sun Securities in Taipei. “The deal was expected and may not have a big impact on HTC’s finances.”

Former Leaders

HTC is scheduled to hold an investor conference call on Feb. 10 and release its January sales and first-quarter outlook statement.

Nokia, based at Espoo, Finland, was once the world’s largest maker of mobile phones, only to see its title collapse as customers flocked to the design and technology advancements in Samsung Electronics Co. and Apple Inc. devices. Sales of HTC, once the leading smartphone maker in the U.S., dropped 30 percent last year.

Nokia is selling its phone business to Microsoft, a deal that’s expected to close this quarter, to focus on networking equipment. It’s retained patents on fundamental phone technology as part of a program to try and recoup the billions of dollars it spent on research.

“This agreement validates Nokia’s implementation patents and enables us to focus on further licensing opportunities,” Paul Melin, chief intellectual property officer at Nokia, said in the statement.

Judge’s Finding

An ITC judge in September found that HTC infringed two Nokia patents for a way to remove errors in radio signals and a process to deal with different radio frequencies. No infringement was found of a third Nokia patent for a way to transmit data from a computer to a mobile phone, which Google Inc. helped HTC challenge. It was directed at phones running on Google’s Android operating system.

“Nokia has one of the most preeminent patent portfolios in the industry,” HTC General Counsel Grace Lei said in the statement. “As an industry pioneer in smartphones with a strong patent portfolio, HTC is pleased to come to this agreement, which will enable us to stay focused on innovation for consumers.”

Patent Portfolio

Many of Nokia’s patents cover technology that’s used across the industry. The case is part of a broader debate over whether patents that cover fundamental technology related to industry standards should be treated differently than, for instance, patents on specialized features.

The Obama administration has come out for limited restrictions on so-called standard essential patents. It overturned an import ban won by Samsung against Apple because it said the ITC didn’t fully address the criteria the administration laid out to determine if an import ban is appropriate.

The case is In the Matter of Certain Electronic Devices, Including Mobile Phones and Tablet Computers, 337-847, U.S. International Trade Commission (Washington).

To contact the reporters on this story: Susan Decker in Washington at sdecker1@bloomberg.net; Cindy Wang in Taipei at hwang61@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

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